Gold is considered a traditional investment option in India. The love for the yellow metal is such that it is present in almost every household in the country. The advent of technology and awareness among individuals has opened up various gold investment options. We have covered the following in this article on how the various forms of gold attract tax:
1) Taxation of physical gold
In India, the most popular form of investing in gold is physical gold. Indians like to hold gold in the form of ornaments and jewelry. When you sell physical gold, be it in the form of jewelry or bars and coins, you will realize taxable capital gains. The rate of tax on these depends on the holding period.
Your holding is termed as ‘short term’ if you sell your gold jewelry or coins and bars within thirty-six months from the date of purchase. The short-term capital gains are added to your overall income and taxed at the income tax slab rate you fall under.
Your gold holdings are termed ‘long term’ if you hold them for longer than three years from the date of purchase. The long-term capital gains are taxed at 20% after indexation. The applicable cess and surcharge will be applied to both short and long-term capital gains.
2) Taxation of market-linked gold
Market-linked gold is also referred to as paper gold, including gold investment avenues in the form of mutual funds, sovereign gold bonds (SGB), and gold exchange-traded funds (ETFs). The taxation norms of gold mutual funds and gold ETFs follow the same process as that of physical gold.
Sovereign gold bonds provide returns in two forms; interest or dividends and capital gains. The SGBs provide an annual interest at the rate of 2.5%, and no TDS is cut. Investors’ interest income is added to the investors’ overall income and taxed at their income tax slab rate.
The SGBs come with a tenure of eight years. The capital gains earned upon maturity of these bonds are made tax-exempt. In case you wish to make a premature exit, then the following tax rules apply:
On redeeming your SGBs after the fifth year, you will attract a long-term capital gains tax at the rate of 20% after indexation, plus cess and surcharge.
You can also sell the bond on the recognized stock exchanges if held in the dematerialized form and listed from the day the Reserve Bank of India (RBI) notified them. If you sell your SGBs within three years, then you attract short-term capital gains. These gains will be added to your overall income and taxed at your income tax slab rate. On selling your SGBs after a holding period of three years, you will realize long-term capital gains. These gains are taxed at 20% after indexation. The applicable surcharge and cess will be levied.
3) Taxation of Digital gold
The capital gains of physical gold follow the same norms as that of physical gold. That is, the short-term capital gains are added to your overall income and taxed at the income tax slab rate you fall under. Long-term capital gains are taxed at 20% after indexation, with applicable cess and surcharge.
The taxation norms vary across gold as an investment avenue. It is essential to know the way your gold holdings are taxed. It will help you plan your finances accordingly.